Share tip updates: William Sinclair and Darty

Phil Oakley reviews two of his riskier share tips from last year to see how they have fared.

William Sinclair (LSE: SNCL)

In January last year, I tipped the shares of William Sinclair, the maker of J Arthur Bower’s compost and other horticultural products.

My reasoning was that the company had gone through some tough times and that things could only get better – I was wrong. The shares have almost halved since then and the dividend has been scrapped.

The firm has got itself into a bit of a mess. It had agreed to sell its Bolton Fell Moss peat bog to Natural England for just over £20m, but had to wait for the cash. Poor weather, and the loss of sales that came with this decision, forced it to issue a convertible bond with eye-watering interest rates to keep the business going on a day-to-day basis.

It then committed the schoolboy error of jacking up its peat prices to compensate for lower volumes. Many of its customers decided to go elsewhere. As a result the company is losing money.

Yet it still has some good brands and customers. It’s invested £15m in a new facility at Ellesmere Port on the Wirral to make a peat substitute compost, SuperFyba. If this takes off it should start making money again.

The market value of the company’s shares is now £10.6m at a share price of 61p. This is about the same as its net asset value. The shares are definitely not for the nervous – but could be worth a punt given how far they’ve fallen.

Verdict: a high-risk buy

Darty (LSE: DRTY)

In March 2013, I tipped shares in distressed electrical retailer Darty at 42p. The shares are now 82% higher than they were then, but they have fallen 35% this year.

Last week the company said that profits at its recently purchased website would be lower than expected, and as a result analysts in the City have quickly revised down their expectations for Darty’s profits as a whole.

Yet, Darty’s strategy of getting out of weak markets, cutting costs and concentrating on its core areas of France, Belgium and Holland still promises to deliver higher profits during the next few years. Selling electrical goods is a very tough market, especially given the fierce online competition.

However, Darty is holding its own and has some good businesses. Dixons and PC World in the UK have proved that it is possible for bricks-and-mortar retailers to do well. Darty France could arguably do the same over the English Channel.

The shares look cheap on a prospective earnings before interest and tax (EBIT) yield of 12% (that is, operating profit / enterprise value) and offer an attractive prospective dividend yield of 4.1% with the potential for further dividend growth.

I reckon the shares could be due a bounce and from here they look once again like a decent, albeit risky, short-term punt.

Verdict: a short-term punt

Leave a Reply

Your email address will not be published. Required fields are marked *